Sustainable energy utilization and environmental protection are important to sustainable economic growth. In this paper, we develop an endogenous economic growth model and discuss the optimal path of sustainable economic growth with the constraints of energy and environment. We find that sustainable economic growth can be achieved only when the relative contribution rate of environment protection investment to environmental quality is more than the relative contribution rate of combined input of energy and environment to production. The results indicate that long-run growth requires not only a continuous energy intensity decrease and technology progress in the fields of energy resources exploitation, exaction, refinement and utilization, but also an optimal structure adjustment from depending on nonrenewable energy to renewable energy.
The sustainable energy utilization and the environmental protection are very important to sustainable
economy and society development. In the past twenty years, many several developing countries have
made amazing achievements in economic development. However, as concomitance of rapid economic
growth and industrialization advance, the energy shortage and the environmental degradation poses a
grave threat to the progress of industrialization and civilization. How to get mutual benefits between the
energy development and environmental protection has drawn a lot of attention in the past twenty years.
Whether can economy pursues the optimal growing path under the dual restraints of the energy and
environment is the focus of sustainable growth.Exhaustible resources, mainly including nonrenewable energy and mineral resource, were once the
focus of research work concerned with economy growth in 1970's. Quite a number of research works
introduced exhaustible resources into neoclassic growth model and discussed the consequent influences
on economic growth. They introduced the exhaustible resources into the Cobb-Douglas production
function and tried to seek the relationship between the exhaustion of the natural resources and the long
term economic growth. It was found that optimal distribution of exhaustible resources will take the
intergenerational equity of the total wealth in a society into account and the sustainable development
should be measured by total capital stock. Although the introduction of exhaustible resources into
neoclassic growth pattern confirmed their restraint mechanism in as well as impacts on economy growth,
the inherent contradictions in the neoclassic growth pattern was still left unsolved. Given Hicks neutral
technical progress, the long term economic growth depends on the marginal factor income increasing,
while the theoretical premise of the neoclassic growth theory was the marginal factor income decreasing.
So, the decreasing marginal income led to an increasing resource exhausting rate. If the regenerating rate
of resources cannot exceed the exhausting rate, economy would come to the zero growth inevitably.
Since 1980s, some researchers developed new growth theory on the foundation of neoclassic pattern,
which took the internal technique change as the core of economic growth and pay much attention to the
knowledge overflow (P.M. Romer, 1986), human capital externality (R. E. Lucas, 1988), the new product
introduction (G.M. Grossman, E. Helpman, 1991), learning by doing (Young and Allyn, 1991) and so on.
By introduction of the knowledge and the specialized human capital, the new growth theory revealed that
the human capital accumulation may cause an increasing marginal return as well as an increasing return to
scale. Based on these theories, H. L Yang et al (2004) introduced energy into the Lucas endogenous
growth model as a factor of production and discussed the function of the human capital accumulation in
breaking out of the exhaustible energy reserve restraint. B. Yu et al (2006) introduced both energy
exhaustion and environment protection into endogenous economic growth model and discussed the requirements of the sustainable growth. Omer and A Mustafa (2008) discussed several issues relating to
renewable energies, environment and sustainable development from both current and future perspectives.
Recently, some researchers attempt to use these models to anticipate the future of environment, energy
and economy. For example, Z. G. Hu, J. H. Yuan and Z. Hu investigated the low-carbon development of
China. According to their prediction of China's economic growth, energy reserves and emissions
mitigation till 2030, China could save energy by more than 4 billion ton oil equivalences and reduce
carbon dioxide emissions by nearly 17 billion tons during the coming 20 years. They also pointed out that
China had to reconstruct its economy and depend much on technology progress in the future.
These research works succeeded in introducing the energy and the environment restraints into the
economic growth. Nevertheless, most of them only considered the negative impacts of environment, i.e.
pollution, and little attention had been paid to the positive environment quality which could make
contribution to the economic growth. Also little literature investigated the ability of environmental
protection investment in improving environment quality. In the following sectors, we will introduce the
energy and the environment into the production function and discuss the double influences of energy and
environment and the optimal path of economic growth under these restraints.
In this paper, we develop an endogenous economic growth model with dual constraints of energy and
environment. We find that with the restraints of energy and environment, economy growth can hardly be sustained without human capital accumulation, environmental protection investment or energy structure
adjustment. Firstly, sustainable economic growth need an uninterruptable supply of energy, which can
hardly been guaranteed with the limited reserve of exhaustible energy resources. Without technology
progress, exploitation, refinement and utilization of exhaustible energy are not efficient enough to ensure
energy structure change accomplished before we run out of fossil fuels. Secondly, environment investment
is so important that the enlargement of economy scale will break the limit of environmental carry capacity
sooner or later because self-regenerate rate of environment can hardly outpace the damage rate by
economic growth without environmental recovery which is usually financial supported by government.
Thirdly, change from depending on conventional fossil fuels to renewable energy is necessary because any
technology advance cannot stop these energy resources from exhaustion eventually and negative effects to
environment is often irreversible, or at least difficult to be eliminated or even mitigated.
We also find that sustainable economic growth can be achieved only when the relative contribution rate
of environment protection investment to environmental quality is more than the relative contribution rate of
combined input of energy and environment to production. It implies that technology progress is not as
important in environment recovery as it does in economic growth. Although there is no evidence, it can be
reasonably inferred that technology advance in industrial emission control will bring more benefits to
environment than it does in ecosystem restoration. Since so much environment deterioration is irreversible,
financial support and scientific research should be directed to prevention rather than repairmen.
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